Stricter rules governing Medicare Advantage marketing may offer smaller health insurance companies an opportunity to snatch market share from dominant players such as Humana and UnitedHealthcare.
Large health insurance companies have employed generous and creative broker and agent compensation strategies to gain and hold members. Some smaller rivals that may lack the resources to match that approach believe limits the Centers for Medicare and Medicaid Services wants to establish on those practices could benefit them.
CMS issued a proposed rule this month that would establish a hard cap on how much Medicare Advantage insurers can pay brokers and independent agents who sell policies to beneficiaries. The agency touted the draft regulation as a way to promote competition and ensure marketers advise beneficiaries to choose the best policies for their needs rather than the plans that pay brokers and agents the most.
“We've got a financial arms race going on in the markets where the smaller, nonprofit plans are under a lot of pressure to compete with those kinds of dollars because if you don't, you may not get mentioned by a broker as they're helping seniors enroll,” said Ceci Connolly, president and CEO of the Alliance of Community Health Plans, a trade association for nonprofit insurers.
Small insurers face steep obstacles in the heavily concentrated Medicare Advantage market. This year, UnitedHealth Group subsidiary UnitedHealthcare and Humana have dominated the industry with 14.4 million members between them, or a 47% combined market share, according to CMS data compiled by KFF. Medicare Advantage is the least competitive segment of the health insurance industry, according to the American Medical Association.
UnitedHealthcare and Humana offer big bonuses to national marketers, which is why they continue to grow faster than industry average, said Gary Taylor, managing director and senior equity research analyst at the investment bank TD Cowen.
“The plans are paying billions of dollars to brokers and [field marketing organizations] for administrative costs, marketing costs and these other things,” Taylor said. “It's completely unregulated. Surely, some of that is going into the pockets of the brokers, which circumvents the whole point of having regulated commissions.”
UnitedHealthcare, Humana and the health insurance trade group AHIP did not respond to interview requests. The Blue Cross Blue Shield Association is still reviewing the draft regulation, a spokesperson wrote in an email.
The proposed rule could have negative effects on Medicare beneficiaries, said Ronnell Nolan, president and chief operating officer at the trade association Health Agents for America. Health insurance companies would likely ramp up advertising, hire more internal marketers and contract with fewer independent brokers and agents, she said. That could lead to higher premiums. “There’s absolutely a trickle-down effect,” she said.
To win business under the present circumstances, Alignment Health has hired agents, inked marketing deals with retailers such as Walgreens, and focused on achieving high star ratings to entice brokers and agents to market-- and beneficiaries to purchase -- its policies, said CEO John Kao.
Still, large insurers’ big payments to field marketing organizations make it hard for Alignment Health to gain traction, especially when it enters new geographic areas where it lacks relationships with marketers and Medicare beneficiaries, Kao said. “You’re not just competing against the respective plans. You’re competing against the brokers,” he said.
Similar dynamics have played out in Minnesota, where independent agents and brokers increasingly persuade beneficiaries to drop UCare Medicare Advantage plans for Part D prescription drug coverage policies from larger carriers with big advertising budgets, Vice President of Sales Brian Eck said. Additional federal oversight into how insurers pay marketers would level the playing field, he said.
“We're not able to keep up in our markets with the level of marketing spend that we see some of the national companies do. It's very apples to oranges,” Eck said.
Security Health Plan likewise cites marketing and sales tactics large rival insurers and marketers employ to explain its Medicare Advantage disenrollment rate, which hit 27% this year, nearly triple its historical average, said Krista Hoglund, CEO of the nonprofit insurer, which is owned by Wisconsin-based Marshfield Clinic Health System. The proposed rule is a welcome first step to enhance competition but may not go far enough, she said.
“My worry always is, ‘OK, we've addressed this, but where might there be another gap that somebody finds and the money squishes out in another place?’” Hoglund said. “CMS needs to make sure there's enough transparency to see that if that starts to happen, CMS can pivot quickly to address it.”
CMS already limited how much carriers can pay individual brokers and agents before proposing the new policy. But some insurers sidestep this maximum by categorizing payments to salespeople as administrative or marketing expenses, enlisting sales representatives to perform health risk assessments or contracting with middlemen that pass bonuses on to brokers and agents on their behalf.
The agency's new marketing proposal does not clearly limit payments to cooperative marketing agencies, Humana Chief Financial Officer Susan Diamond said at Stephen’s Annual Investment Conference on Nov. 15.
“There is no technical cap on other payments that are made to agencies that sit on top of those brokers,” Diamond said. “There are arrangements between all health plans and those brokers that might allow for co-op marketing or administrative fees for some of the services they perform.”
The latest CMS proposal builds on other actions it has taken to crack down on Medicare Advantage marketing.
For the first time this year, CMS requires sellers to record every interaction they have with current and prospective policyholders. The agency also limited how benefits may be advertised and reviewed ads before they went public. The new rules have already influenced the market: The advertising agency responsible for Medicare Advantage television commercials featuring retired football player Joe Namath filed for bankruptcy in May after the Federal Trade Commission hit Benefytt Technologies with a $100 million fine for misleading marketing last year.